STRENGTHS

Large gas and oil reserves

Very low external debt

Strategically located on the Mediterranean near Europe

WEAKNESSES

The country is split in two: Tripolitania in the west is governed by the Tripoli government, which is recognised by the international community, while Cyrenaica in the east is run by the Al-Beïda government supported by Field Marshal Haftar

The south of the country (Fezza) is having to cope with an upsurge in trafficking (human, weapons and drugs) and conflict between the Tuareg and Toubou groups

High inflation

Social tensions; political and tribal fragmentation

Unfavourable business environment

Risk assessment

The Libyan crisis persists

After several failed attempts at mediation led by the United Nations, the Libyan crisis seems to be deadlocked once again. Undermined by political fractures inherited from the post-Gaddafi transition, Libya remains a divided territory. The Tripoli Presidential Council, which is supported by the international community, and a rival government in the east of the country backed by Field Marshal Khalifa Haftar, continue to fight over power. Despite the appointment of the new UN emissary, Ghassan Salamé, as head of the UNSMIL in 2017, little headway has been made. The UN is trying to find a political solution to the conflict and to reunify the two governments through parliamentary and presidential elections. The Paris Agreement of May 2018, which brought together the stakeholders – including Fayez al-Sarraj, President of the Presidency Council, Aguila Saleh, President of the House of Representatives, Khaled Meshri, President of the High State Council, and Field Marshal Khalifa Haftar, Commander of the Libyan National Army – set elections for December 10, 2018. Yet this timetable will be hard to achieve: the constitutional basis that will provide the framework for the elections, initially scheduled to be ready by September 16, 2018, has not yet been finalised, as the Parliament has encountered difficulties in reaching a consensus within the deadline. The elections are therefore likely to be postponed until the first half of 2019. Despite some progress in the political resolution of the conflict, the country continues to be undermined by clashes, particularly around oil fields. Armed groups continue to challenge Field Marshal Haftar's troops, who control most of the eastern part of the country, while Islamist and tribal militias are still fighting over territory in the west. The security situation is projected to remain precarious.

Recovery in oil production

Despite the disruptions between June and July, oil production stood at around 1 million barrels per day in 2018, thus ensuring that Libya recorded its second year of growth after the crisis. Despite the obsolescence and destruction of some infrastructure, Libyan production is expected to remain at a comparable level in 2019. Foreign companies seem to be making a cautious return to the country. British oil company BP has announced a partial resumption of exploration activities in collaboration with National Oil Corporation of Libya in 2019. The exploration and production sharing agreement, which began in 2007, is expected to include Eni, an Italian company that has continued to operate in the territory and that has infrastructure near the exploration area. In a similar vein, in October 2018 the national oil company organised an international forum for foreign investors. However, FDI flows will remain very limited until the political situation is clarified and peace returns to the territory. Meanwhile, the non-oil economy continues to be hindered by a lack of resources and continued security concerns. The increase in oil exports has partly made it possible to respond to the shortage of foreign exchange and alleviate the pressure on the parallel exchange rate, leading to a slight drop in prices. In addition, the Libyan central bank plans to apply a tax on foreign currency transactions to narrow the spread between the official and black market exchange rates. Households, who have seen their purchasing power cut by 80% since 2011, should benefit from more stable inflation and civil service wage increases.

Substantial twin deficits

Despite a significant increase in budgetary revenues, the government deficit remained significant in 2018. Higher oil revenues failed to offset the growth in wage expenditure, which reached 48% of GDP. The Tripoli government has, however, embarked on a fiscal consolidation plan aimed at reducing the share of incompressible expenditure by scaling back subsidies (10.6% of GDP). Nevertheless, these reforms will need time to take effect given the country's political instability and the lack of legitimacy of the presidency, which, despite the support of the international community, is struggling to assert its authority across the nation. The Tripoli government will likely continue to obtain financing from the Libyan central bank, but also from Libyan assets accumulated under the Gaddafi regime. The eastern government will remain dependent on borrowing from local banks. Finally, the current account deficit is expected to remain high. While the increase in exports has made it possible to rebuild foreign exchange reserves, it will not be sufficient to restore the external balance. The country imports more than 80% of its consumption needs, including refined oil.